Natural gas-fired electricity output exceeded coal-fired generation last year for the first time in the history of the nation’s largest grid operator PJM Interconnection, according to a report released last week by its independent market monitor.
Natural gas units, which have continued to gain more of the region’s power stack in recent years as Appalachian shale production has driven down prices, accounted for 30.6% of PJM’s generation mix in 2018. Meanwhile, coal units provided 28.6% and nuclear units provided 34.2%, Monitoring Analytics LLC said in its “2018 State of the Market” report. Year/year (y/y) coal generation decreased by 6.6%, while nuclear generation also fell by 0.5%. Those losses came as gas-fired generation increased by more than 18%.
Renewables accounted for a very small share of output, but continued to see significant increases. Wind accounted for 2.6% of generation, while solar power accounted for 0.3% and hydroelectric provided 2.3%. Solar power generation increased 43.7% y/y, while wind output was up 4.4%.
Energy prices in PJM, which have hit record lows in recent years, bounced back and reached their highest point since 2014. Locational marginal prices (LMP) were up 23.4% y/y, according to the report. Merchant generators have faced stiff competition in the open market, but it has intensified with an increasingly diversified resource mix.
In recent years, renewable sources have become more competitive and an abundance of low-cost natural gas has caused electricity prices to plummet, undermining coal and nuclear plants in the process, which has prompted legislatures across PJM to pass or consider subsidies for zero-emissions nuclear plants in particular.
Critics of the programs contend that nuclear facilities receiving out-of-market subsidies can then bid below cost during auctions, putting other resources such as gas at a competitive disadvantage that threatens the wholesale markets.
Monitoring Analytics said in its report that energy prices in PJM are not too low. “There is no evidence to support the need for a significant change to the level of energy market revenues,” the report said. “The objective of efficient short run price signals in the energy market is to minimize system production costs, not to minimize uplift or to ensure a predefined level of revenues in the energy market.”
Net revenues for both coal and nuclear power plants, the market monitor said, increased significantly in 2018 as a result of higher LMPs. While some coal and nuclear facilities are not economic at current expected levels of energy and capacity market clearing prices, “the decisions on how to proceed belong to the owners of those plants,” the report said. The market monitor added that the “fact that some plants are uneconomic does not call into question the fundamentals of PJM markets.”
Meanwhile, PJM said in a separate announcement Monday that reliability and fuel supply throughout its grid have been strong this winter. During a “short but intense” stretch of cold weather throughout PJM’s footprint Jan. 28-31, forced outages were slightly higher than normal winter operations, which the grid operator said is to be expected. But overall generator performance was solid, PJM said, adding that members continue to show market improvement over the polar vortex of 2013-2014, when forced outages spiked during a brutal cold snap that also called into question whether PJM was becoming too reliant on natural gas.
PJM has studied the performance of gas-fired generators under stress, addressing concerns raised by regulators about the increasing percentage of gas-fired generation in the PJM fleet and the ability of those plants to secure fuel supplies when the demand for natural gas for home heating is at its highest.
PJM said gas-fired generators this winter showed improvement over last year. During the peak demand of Jan. 31 — preliminary estimates show it to be the fourth-highest winter peak that PJM has seen — gas supply outages were 2,930 MW. That was an improvement over the 2018 cold snap, when gas generation saw 5,913 MW in supply-related outages. All fuel-supply related outages also fell by more than 50%.
Most natural gas-fired generation outages were due to internal plant issues, such as mechanical failures, as opposed to gas supply outages. “This improvement was driven by a number of factors, including generators firming up gas supply contracts, pipeline expansion projects, improved gas/electric coordination and the relatively short duration of the cold weather,” PJM said.
PJM serves 65 million people in all or parts of 13 states and the District of Columbia. Its footprint includes shale-rich Ohio, Pennsylvania and West Virginia, where gas-fired power plants are proliferating. The shift to gas is likely to continue, Monitoring Analytics said in its report.
As of Dec. 31, there were 52,084 MW of gas-fired capacity active, suspended or under construction in PJM queues. At the same point, there was just 147 MW of coal-fired steam capacity active, suspended or under construction.
The Energy Information Administration noted late last year that gas-fired plants are running more frequently in PJM. The agency said the increase in PJM’s capacity factors, an indication of how often a generator is run, for gas-fired facilities is the largest of any regional transmission organization in the country over the last five years.
As it wrestles with how to deal with out-of-market subsidies for nuclear and other facilities, PJM has said that it is not becoming too reliant on natural gas and even renewable resources as more baseload power retires.
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